Commodities from precious metals to industrial metals and grains slipped on Wednesday as the dollar surged after Republican Donald Trump secured a win in the US elections.
Donald Trump secured victory in the 2024 US presidential election, defeating Vice President Kamala Harris in a contest that saw Republicans gain control of the Senate.
Gold and silver prices were sharply down, while among industrial metals, copper and zinc fell more than 1% each on Wednesday.
Wheat and soybean were also in the red, dropping more than 1%.
Experts believe that the initial knee-jerk reaction to the election news could last for a few more sessions as the outcome is digested by investors around the world.
Industrial metals take big hit
Metals such as copper, zinc and aluminium were all trading in the red on Wednesday as the dollar surged.
A stronger dollar makes commodities priced in the greenback more expensive for overseas buyers, limiting demand and dragging down prices.
According to Ole Sloth Hansen, head of commodity strategy at Saxo Bank, a second presidency for Trump is likely to trigger promised tariffs on imported goods, especially from China.
China is the world’s biggest producer of base metals and also the largest consumer.
The metals market has already been under the pump over the past few months with weak demand from China.
China’s property sector crisis as well as a struggling economy have not only demand for industrial metals, but also oil and jewellery.
Trump has pledged to impose blanket 60% tariffs on Chinese goods to boost US manufacturing.
At the time of writing, the three-month copper contract on the London Metal Exchange was down nearly 2% at $9,555 per ton. The zinc contract on the LME was down 1.5% at $3,063.50 per ton.
However, prices of base metals could get some support from the ongoing four-day meeting of China’s National People’s Congress, which started on Monday.
The influential political body is likely to outline several stimulus measures to prop up Beijing’s economy.
Precious metals dip
Gold and silver were both down on Wednesday as a stronger dollar weighed on sentiments of investors.
Gold has been having a stellar year and an even significant September quarter. Prices on COMEX have surged by more than 30% this year, while in the September quarter alone, they have spiked 15%.
However, the initial reaction to Trump’s victory on Tuesday has led Treasury yields and the dollar to surge, halting gold’s progress.
Haresh Menghani, author at Fxstreet.com, said in a report:
With Trump outperforming, speculation about the launch of potentially inflation-generating tariffs and deficit-spending concerns push the US Treasury bond yields sharply higher.
After the initial reaction, experts believe that gold prices will likely resume their march upward.
A second victory for Trump means that he will deliver on tax cuts and tariff impositions. More tariffs, especially targeted towards China, could pave the way for a trade war, much like the one during Trump’s first presidency.
This would mean more safe-haven demand for commodities such as gold and silver in the longer run.
Saxo Bank’s Hansen noted:
Overall, the election result strengthens our bullish view on safe-haven metals, but for now, the risk of selling from late-entry longs may weigh, together with silver’s slump, as industrial metals take a beating.
At the time of writing, the price of COMEX gold was at $2,734.15 per ounce, down 0.6%, while that of silver was $32.415 per ounce, down 1.1% from the previous close.
Source: TradingView & Fxstreet
Grains and soybeans in red
Futures contracts of key grains such as wheat and corn dropped sharply on Wednesday.
Soybean prices were also trading lower as a stronger dollar continued to weigh on sentiments in the agricultural markets as well.
At the time of writing, US wheat futures on the Chicago Board of Trade were 564.88 cents, down 1.2%. The price of soybeans was also down 1.4% at 986.75 cents.
US corn futures were also slightly lower on Wednesday.
Experts believe that a trade war with China could be significantly worrying for US exports.
In the event that Trump imposes strict sanctions on China, a trade war is inevitable.
Hansen said:
Grains trade lower, led by soybeans on fears that China’s countermeasures may hurt US exports of key crops.
Though Beijing has reduced soybean shipments from the US, the commodity remains the largest agricultural commodity that is exported to China.
Oil supply disruptions
Meanwhile, oil prices also fell sharply on a stronger dollar.
Additionally, global oil supplies could be disrupted even further if Trump decides to tighten sanctions on Iran.
Iran supplies around 4% of the world’s oil, and most of it is taken up by China. Though Tehran was already under sanctions, the Biden administration had not been very harsh on the country’s exports.
That could change with Trump in office now. Oil prices therefore, could rise in the short-term.
However, Trump’s pro-drilling policies and likelihood of easing sanctions on Russia’s oil exports are bearish for oil prices.
The prospect of more production of oil in the country under Trump is already weighing on sentiments in the market.
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